GST Shadow Over Trade Across LoC As India Considers PoK Its Integral Part

New Delhi: Cross-border trade across the Line of Control (LoC) in Jammu & Kashmir is facing the heat of new tax regime — Goods and Services Tax (GST) as it has introduced additional complications for traders because of the nature of the trade and sensitivities regarding the nature of the border.

It was only in 2008 that trade was first allowed across the LoC between Jammu & Kashmir and Pakistan Occupied Kashmir (PoK). However, the trade was duty free as the items traded were treated as 'goods traded in' and 'goods traded out' and not as imports and exports. This because officially India considers PoK to be an integral part of India. However, with GST operational in J&K traders fear they will be taxed for goods that they once traded for free.

The J&K government has brought the issue to the notice of the authorities in New Delhi, and an inter-ministerial panel is looking into the issue. A government source confirmed that the matter is under discussion and that a solution will have to be found.

Goods are traded through two routes: Uri-Muzafarabad and Poonch-Rawalakote. More importantly, the trade was restricted to barter since cash was banned across the LoC for trade purposes. Perishable items like vegetables and fruits, saffron and other agro commodities, carpets, shawls, and other handicrafts were traded.

However, with the introduction of GST, the traders fear that they may have to pay GST to the government. This is because under the GST mechanism, a supplier of goods has to file an invoice recording the quantum and price of the transaction. The trader who purchases the goods has to file a similar invoice, so that each transaction has two sets of documents from different points in the supply chain. It is only when the two sets of documents match that the trader and the supplier can claim an input tax credit, which offsets the tax that they have already paid.

In the absence of money to settle transactions across the LoC, traders fear that paying GST will eat into their margins. Already, trading across the Line of Control is a headache for traders because of the political tension. Earlier this year, trade across the Muzzafarabad-Uri route was suspended due to the recovery of contraband worth Rs 300 crore from a truck. Trade across the LoC and the peace bus service between India and PoK will resume next week.